Informa Plc

Informa Plc (LON: INF) is an FTSE 100 index listed and United Kingdom-based media company. The Company has five segments: Informa Markets, Informa Connect, Informa Intelligence, Informa Tech, and Taylor & Francis.

On 29 July 2021, the Company will publish its H1 FY2021 results.

Investment Rationale for Valuation – Buy at GBX 499.20

• Fitch assigned BBB- Long-Term Issuer Default Rating (IDR) and senior unsecured rating to Informa with a stable outlook. It reflects INF’s leading position in the global exhibitions sector.
• The acquisitions of F1000 Research Limited and TrialScope Inc. could bring substantial synergy to INF.
• INF is expected to experience growth in its subscriptions-led businesses and B2B digital services in FY2021.
• Displaying the strength of its business, INF reduced its debt by 6% YoY in FY2020.
• On the technical front, the 14-day RSI at around 35.51 is sustaining just above the oversold zone. Hence, there could be an uptick in the stock price in the near term.

Key Risks

• The acquisitions may not achieve the desired synergy, leading to higher costs.
• There are financial risks from unfavourable interest and exchange rate movements, affecting INF’s margins.
• Shareholder backlash over a bonus scheme could tarnish the Company’s image.

Trading Update (released on 3 June 2021)

• INF continues to trade as per expectations in FY2021 and is expected to meet the baseline revenue target of at least £1.7 billion in FY2021.
• Further expansion of B2B digital services and gradual normalcy in physical events, mainly in China, could help INF in achieving its revenue target.
• In Informa Intelligence, the management expects to meet its underlying growth target of ~4% in FY2021.
• Taylor & Francis business is expected to return to pre-Covid levels in FY2021, driven by strong core subscriptions business, rising royalty-based publishing and growth in open research services.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

INF wants to achieve long term value by focusing on costs and financing, growth of its subscriptions-led businesses and expansion of B2B digital services in FY2021 and beyond. The Company gradually wants to return to the pre-Covid levels with a baseline revenue target of £1.7 billion in FY2021. It also expects to remain cash flow positive throughout. Furthermore, the acquisitions of F1000 Research Limited and TrialScope Inc. could bring the desired synergies. The decent prospects of INF are reflected in the recent stable outlook assigned by Fitch. The stock made a 52-week low and high of GBX 345.80 and GBX 659.00, respectively. On the technical chart, the next important support level is GBX 380.00.

Based on the expected synergies from the acquisitions, the Company’s leading position in the global exhibitions sector, expected growth in subscription-led and digital businesses, and support from valuation as done using the above method, we have given a “BUY” recommendation on Informa Plc at the current market price of GBX 499.20 (as on 30 June 2021 at 10.20 AM GMT), with a lower double-digit upside potential based on 33.17x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

Melrose Industries Plc

Melrose Industries Plc (LON: MRO) is an FTSE 100 index listed manufacturing and industrial company with a leading market position. The Company operates across several geographies.

On 9 July 2021, the Company will hold General Meeting to approve the £730 million special dividends worth GBX 15 per share following the completion of the £2.6 billion disposals of Nortek Air Management.

The next dividend of GBX 15.00 per share would be paid on 14-September-2021, subject to approval (Special-Consolidation).

Investment Rationale for Valuation – Buy at GBX 152.88

• Following the completion of the £2.6 billion disposals of Nortek Air management, MRO could offer a £730 million special dividend worth GBX 15 per share.
• Victoria Jarman, Non-executive Director, and Heather Lawrence, Non-executive Director, bought 15,000 and 25,000 ordinary shares of MRO recently.
• MRO carried a positive momentum in FY2021 so far, with sales being up 8% YoY in the first four months of FY2021.
• Over the last year, MRO’s stock return was higher than the benchmark FTSE 100 index return. This trend is likely to continue considering the prospects of the Company.
• On the technical front, the 14-day RSI at around 40.23 is moving towards the oversold zone, indicating that the stock price could have an upward movement in the near term.

Key Risks

• Long production delays could have a material impact on the operating performance and financial position of MRO.
• Due to lower activity levels, customer demand could shrink, affecting the margins of MRO.
• Due to its international operations, foreign exchange fluctuations could impact financial performance.
• There could be further disruptions in the supply chain, increasing costs and affecting margins.

AGM Trading Update (released on 6 May 2021)

• Driven by the continued positive momentum carried into FY2021, sales in the first four months of FY2021 was up 8% YoY.
• During this period, automotive, powder metallurgy, Nortek air management and other industrial division achieved sales growth of 28%, 35%, 28% and 12% YoY, respectively.
• However, the performance of the aerospace division was muted with defence growing and civil significantly down. Sales in the aerospace division were down 27% YoY.
• MRO is currently exceeding expectations. It is cash neutral till 30 April 2021, which is traditionally a cash outflow period.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

MRO experienced positive momentum in FY2021, with most of its divisions achieving YoY sales growth. The management expects the momentum to continue, albeit at a reduced rate for the rest of FY2021. The operating margin continues to grow beyond expectation, and there has been a solid cash generation. MRO has further improved its liquidity significantly following the £2.6 billion disposals of Nortek Air management, from which it is likely to pay a special dividend to shareholders. The stock made a 52-week low and high of GBX 82.20 and GBX 189.90, respectively. On the technical chart, the next important support level is GBX 130.00.

Based on the insider purchase of its shares, positive momentum and decent growth prospects, solid liquidity position, potential special dividend payment, and support from valuation as done using the above method, we have given a “BUY” recommendation on Melrose Industries Plc at the current market price of GBX 152.88 (as on 30 June 2021 at 10.05 AM GMT), with a lower double-digit upside potential based on 34.52x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Berkeley Group Plc

Berkeley Group Plc (LON: BKG) is an FTSE 100 listed company founded in 1976. It builds homes, parks and public places and operates in residential-led, mixed-use property development.

In August 2021, the Company will publish its FY2021 annual report.

The last dividend of GBX 9.13 per share was paid on 19-March-2021 (interim dividend).

Investment Rationale for Valuation – Buy at GBX 4,613.00

• House prices in the UK surged by 13.4% YoY in June 2021, the highest since 2004. The strong demand is expected to sustain while the coronavirus emergency tax break continues.
• In FY2021, BKG acquired ten new sites covering over 6,650 homes.
• BKG’s net promoter score (+77.9) and customer satisfaction ratings are the best in the industry.
• On the profitability front, the net margin since FY2019 is consistently higher than the industry median of 10.4%.
• On the liquidity front, the current ratio in FY2021 is higher than the industry median of 2.78x.
• In the last three months, the Company delivered a higher return than its benchmark FTSE 100 index return, i.e. the stock outperformed the index.

Key Risks

• BKG’s net cash position declined YoY, which could impact its sustainable dividend policy.
• The real estate sector is cyclical. Hence, muted consumer confidence during an economic downturn could impact the demand, margin and liquidity of BKG.
• BKG operates in a highly competitive environment. Increased competition could surge land prices and hence, property development costs, potentially impacting margins.

Recent News

Change in Directorate: On 23 June 2021, BKG announced that Peter Vernon would be stepping down from the Board after the AGM on 3 September 2021 to take a long sabbatical.

Financial Highlights (for the year ended  30 April 2021 (FY2021), as of 23 June 2021)

(Source: LSE Website)

• Driven by good demand caused by the SDLT holiday, BKG’s revenue rose 14.7% YoY in FY2021.
• It resulted in a 6.9% YoY increase in operating profit and a 2.8% rise in profit before tax.
• However, due to share buy-backs and payment of dividends, net cash position was down YoY by £11 million.
• BKG acquired ten new sites covering over 6,650 homes in FY2021, with seven in London.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

BKG has an ambitious future plan called Vision 2030. It is committed to carbon reduction and increased delivery of new homes. To achieve this, the management is contemplating a significant investment. BKG continues to invest in new land opportunities. Hence, BKG is well-positioned to generate a substantial return for its shareholders. The stock made a 52-week low and high of GBX 3,946.00 and GBX 4,902.00, respectively. On the technical chart, the next important support level is GBX 3,850.00.

Based on the decent trading momentum, solid growth prospects, the better profitability and liquidity of the Company than the industry, and support from valuation as done using the above method, we have given a “BUY” recommendation on Berkeley Group Holdings Plc at the current market price of GBX 4,613.00 (as on 30 June 2021 at 10.30 AM GMT), with a lower double-digit upside potential based on 15.71x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

Softcat Plc

Softcat Plc (LON: SCT) is an FTSE 250 listed company founded in 1993. It provides technology services and solutions in the UK and Ireland.

On 26 October 2021, the Company will publish its FY2021 annual results.

The last dividend of GBX 6.40 per share was paid on 14-May-2021 (interim dividend).

Investment Rationale for Valuation – Buy at GBX 1,801.00

• In Q3 FY2021, SCT achieved double-digit YoY growth in revenue, gross profit and operating profit.
• The Company has strengthened its transaction volumes in the latest quarter.
• On the profitability front, the net margin since FY2019 is consistently higher than the industry median of 6.1%.
• On the liquidity front, the current ratio since FY2020 is higher than the industry median of 1.33x.
• On the leverage front, the Company has a significantly lower debt/equity ratio than the industry median of 0.30x since FY2019.
• In the last six months, the Company delivered a higher return than its benchmark FTSE 250 index.
• On the technical front, the 20-day EMA at around GBX 1793.00 is sustaining below the stock price, indicating that the stock price could have an upward movement in the near term.

Key Risks

• The payment of dividends could put stress on SCT’s liquidity.
• A competitor with disruptive technology could take away market share from SCT.
• Incidents of cyber-attacks could put data security at risk. It could also create reputational risk for SCT.

Q3 FY2021 Trading Update (released on 26 May 2021)

• Driven by a broad-based performance, SCT in Q3 FY2021 delivered a double-digit YoY surge in revenue, gross profit and operating profit.
• Run-rate transaction volumes were up in Q3 FY2021 driven by SCT’s operational excellence.
• Cash conversion and collection met expectations in Q3 FY2021.
• Going forward, Covid-19 related cost savings would no longer be there as there would be physical meetings with customers as well as internal events.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

For the rest of FY2021 and FY2022, the management is confident of further growth and expects to achieve EBIT in line with the upgraded performance. There is continued investment in building capacity and stable demand as organisations accelerate focus on security. Hence, SCT is likely to continue its strong momentum. The stock made a 52-week low and high of GBX 1,069.00 and GBX 1,988.00, respectively. On the technical chart, the next important support level is GBX 1,550.00.

Based on the decent financial and operational position, solid growth prospects, better profitability, liquidity and leverage position of the Company than the industry, and support from valuation as done using the above method, we have given a “BUY” recommendation on Softcat Plc at the current market price of GBX 1,801.00 (as on 30 June 2021 at 10.05 AM GMT), with a lower double-digit upside potential based on 43.82x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

Ashmore Group Plc

Ashmore Group Plc (LON: ASHM) is an FTSE 250 index listed and the United Kingdom-based specialist asset manager for emerging markets.

On 14 July 2021, the Company will release its Q4 FY2021 AUM statement.

The last dividend of GBX 4.80 was paid on 30-March-2021, which was declared on 10-February-2021 (Interim dividend).

Investment Rationale for Valuation – Buy at GBX 376.80

• The asset management industry could benefit from the UK Financial Conduct Authority’s recent climate disclosures as it would help asset managers develop and meet investor demand for green investment strategies.
• ASHM experienced a strong recovery in emerging markets in Q3 FY2021. It achieved net inflows in equities, corporate debt and alternatives.
• Expected central bank supportive policies would help achieve continued strong performance in emerging markets.
• On the profitability front, the net margin since FY2019 is consistently significantly higher than the industry median of 23.9%.
• On the liquidity front, the current ratio since FY2019 is significantly higher than the industry median of 2.06x.
• On the leverage front, the debt/equity ratio is minimal at 0.01x in H1 FY2021, substantially lower than the industry median of 0.12x.
• On the technical front, the 14-day RSI at around 34.89 is moving towards the oversold zone. Hence, there could be an uptick in the stock price in the near term.

Key Risks

• There could be a drop in asset prices driven by the withdrawal of funds by clients.
• Inflation rates could continue affecting the future assets under management, impacting the margins of ASHM.
• Brexit related regulations could impact the growth of ASHM by increasing costs.
• There are financial risks from unfavourable interest and exchange rate movements, increasing the uncertainty in the performance of ASHM.

Q3 FY2021 Trading Update (released on 16 April 2021)

(Source: LSE Website)

• In Q3 FY2021, there was an improving trend due to strong recovery in emerging markets. However, there was a negative investment performance of USD 4.6 billion.
• Despite net inflows of USD 1.5 billion in Q3 FY2021, asset under management was down QoQ by ~3% to USD 89.9 billion in Q3 FY2021.
• Globally, there were successful vaccinations in many countries and also a repricing of inflation expectations.
• It resulted in the fall of fixed income markets and the rise of equity markets in Q3 FY2021, as well as the seventh consecutive quarter of net inflows to equity strategies.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

ASHM anticipated growth in the emerging markets for FY2021. The accelerated progress of Covid-19 vaccinations could boost economic activities further.  It provides ASHM with the opportunity for active asset management in FY2021 and beyond. The management believes that annual inflation rates will go down in the long term. Also, the policies of various central banks are expected to be supportive of the asset managers. The stock made a 52-week low and high of GBX 337.60 and GBX 493.40, respectively. On the technical chart, the next important support level is GBX 295.00.

Based on better profitability, liquidity and leverage profile of the Company than the industry, anticipated further recovery in the emerging markets, expected central bank supportive policies, potential new opportunities arising from the UK Financial Conduct Authority’s recent climate disclosures, and support from valuation as done using the above method, we have given a “BUY” recommendation on Ashmore Group Plc at the current market price of GBX 376.80 (as on 30 June 2021 at 10.40 AM GMT), with a lower double-digit upside potential based on 18.81x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective buy stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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